CHART OF THE DAY: Learn To Love That Huge Trade Deficit

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Earlier, economists were surprised when the May trade deficit came in at $50 billion, well ahead of the $44.1 billion in expectations. Because the trade deficit gets subtracted from GDP, this was seen as cause for worry.

But worry not!

The high trade deficit was caused by robust domestic demand, and where there’s robust domestic demand there’s economic activity.

And history bears this out: Even though the trade deficit is subtracted from GDP, a high trade deficit is strongly associated with a strong GDP.

Check out this chart comparing the annual change of the trade deficit (not percentage, but in actual dollars) vs. the change in the GDP (again, actual dollars).

When the trade deficit goes up, GDP goes up. When the trade deficit goes down, GDP goes down.

chart of the day, trade deficit/balance vs gdp, july 2011

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